What’s Your Credit Card IQ?

“When a man is in love or in debt, someone else has the advantage” - Bill Balance

DEBT, n. An ingenious substitute for the chain and whip of the slave driver. The Devil's Dictionary by Ambrose Bierce

Which came first – credit or currency?a. Credit

• Credit was first used in Assyria, Babylon and Egypt over 3000 years ago

• The bill of exchange (the forerunner of currency) was established in the 14th century

• Paper money was introduced in the 17th century

• The first credit advertisement was placed in 1730 by Christopher Thornton who sold furniture that could be paid off weekly (the installment loan)

• From the 18th century until the early part of the 20th century credit arrangements were largely installment loans between consumers and individual stores

What technological advancement led to the widespread us of credit cards?

b. Standardization of the magnetic strip

• Diners Club and American Express issued the first charge cards in the US in the 1950s

• Diners Club cards were issued to 200 customers who could use it at 27 restaurants in New York

• The standardization of the magnetic strip in the 1970’s enabled information to be stored and retrieved on a credit card, turning them into the “plastic money” product they are today

Which state was the Capital of Credit Cards?

c. South Dakota

• Recession & double digit inflation during mid 1970s

• Legal limits on interest rates were less than the cost of money

•South Dakota lifted usury ceilings

•Citibank moved its credit card operations to South Dakota

•US Supreme Court’s Marquette decision enabled banks to charge one interest rate across state lines

How many credit cards does the average American family have?

b. 8

This has increased to 9 in 2007; with the average consumer having 13 credit obligations including bank cards, department store cards, gas cards and installment loans (student loans, car loans, mortgages, etc.)

Approximately how many Americans pay off their credit card bill each month?

a.55 million

• a little more than 1/3rd of all American cardholders payoff their entire balance each month

Approximately how many Americans pay only the minimum payment required each month?

b.35 million

• Almost ¼ of all American cardholders only make the minimum required payment, regardless of their ability to pay

The industry jargon for someone who pays his or her bill in full every month is:

a.Deadbeat

• Credit card companies earn their income by charging cardholders interest on their outstanding balances

• Revolvers roll credit balances over monthly, never paying in full

• Rate surfers or Gamers shift usage between credit cards depending on interest rates

The credit card debt carried by the typical American families is approximately:

b. $8,000

•This is unsecured debt, which doesn’t include mortgages and car loans

•Total US consumer revolving dent reached $904 billion in 6/2007; a 2.8% increase since 12/2006

•Consumers spent $51 billion on fast food with credit and debit cards in 2006 (a 54% increase)

•The average ticket for Visa purchases is consistently more than a cash purchase

How much notice must a credit card company give its customers when changing the terms of the cardholder contract?

c. 15 days

Which of the following is likely to trigger the universal default clause in the cardholders contract?

d. All of the above

•Applying for and receiving a loan may imply that you are carrying too much debt and cause the credit card company to increase your APR

Who regulates the national banks that issue most of the credit cards?

a. The OCC

•There is no single regulatory authority for credit cards

What is a cardholder’s liability for a stolen card that is used by the thief?

a. $50 maximum

•Credit card issuers offer credit protection services, usually for a fee

What does your FICO score indicate?

a. The individual is likely to pay their bills•A FICO score, which we will explore further, is known as your credit score

•Your credit score is used to determine your eligibility for all forms of credit: secured and unsecured

Why are there no legal limits on the amount of interest and fees that banks can charge on credit cards?

b. Two US Supreme Court rulings permit banks to charge what the market will bear

•Smiley vs. Citibank lifted restrictions on late penalty fees

•Credit card fee income has doubled

Credit Cards are a Global Phenomenon•US credit card use far outstrips the rest of the world, but global use is growing

•Debit cards are preferred in Europe

•Many carry overdraft protection with lower lines of credit and cheaper rates than credit cards

•France has stricter controls on credit data than the US

•Only the UK has adopted a US style credit scoring system

•Credit card use has increased almost 600% in South Korea, since 1998

•China UnionPay, the state-run credit payments company is developing a credit card infrastructure in time for the 2008 Beijing Olympics

Are the credit card issuers responsible for the high rate of indebtedness of the average American family?

What do you think?